Should your first offer be your best?

You’ve found it, the house you can spend the rest of your life in. But before you start dreaming of arranging furniture and hanging pictures, you have to make the sellers an offer they can’t refuse. Do you give them what they’re asking for, or do you a whack a few thousand off the list price and see what they do?

Unfortunately, there’s no hard and fast rule regarding reasonable first offers. Your first bid is a signal that you’ve begun the negotiations, and chances are you and the seller will go back and forth with numbers and offers before reaching an agreement.

To give yourself room to haggle, it’s usually best to offer a first bid that’s below the list price and less than the maximum you can afford. A general rule is between five and ten percent below the list price. However, there are many factors that affect your opening bid, and the key to a successful offer is not percentages but information.

It’s crucial to know the state of the housing market in your area before making an offer. If your prospective new home is in a hot seller’s market, you are probably competing with other bidders and may have to offer the list price or even higher.

Where the market is stable or, if you’re lucky, favors the buyer, you will need to do research to establish a fair price range. Find out what similar houses in the area have sold for. Ask your real estate agent for his or her opinion and for competitive market analyses (CMAs) for homes in the area that are comparable in terms of size, rooms and construction. This will tell you what houses like the one you want to buy have sold for recently. You can also find sales statistics in the Multiple Listing Service (MLS) and public records, but these may be several weeks old.

Once you have a price range for similar homes, consider if there is anything about the house you are considering that could raise its value, such as additions or renovations, or problems that would reduce the price, including insect infestations or structural flaws.

A seller’s motivation is also important when determining what to offer. A seller who has to sell quickly, possibly because he or she has already bought another home, may be open to a lower bid. Sometimes this information is given as part of the MLS listing, or you can ask your agent about the seller’s motivation. But even if your REALTOR® knows, he or she may not be able to tell you, if they also represent the seller. They should, however, be able to tell you how long the house has been listed and about any price reductions. If the house has been on the market a while, the seller may be willing to accept a lower price.

Other bargaining chips include the occupancy date, items included in the sale, transaction costs and warranties. You may offer a higher price, for example, in return for the appliances or area rugs.

Your offer can also include things other than price to make it more appealing. Mortgage pre-qualification is a big plus, as it tells the seller you’re serious and makes it less likely the deal will fall apart. Also, try to have your offer personally delivered by you or your real estate agent. This allows any questions to be addressed quickly and easily. Some buyers also personalize the offer to give the seller an idea of who they are and why their offer should be accepted.

In the end, be prepared to negotiate, but also think hard about what to include in your initial offer. If it’s accepted, it will become a legally binding document and you will be required to follow through with the purchase or risk losing your deposit. Before submitting any offer, discuss the terms with your REALTOR® and consult a real estate lawyer.

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